I’ve just run into this paper: David Dunning, Chip Heath, Jerry M. Suls (2004) “Flawed Self-Assessment. Implications for Health, Education, and the Workplace”. Psychological Science in the Public Interest 5 (3), 69–106.
It’s a review paper summarising a range of research on superiority bias and other self-regarding biases and applying it to real-world decisions. As a paper summarising the effects of self-regarding biases, it supports the second of my four proposals. The summary is such a gem I can’t resist quoting it at length:
“In general, people’s self-views hold only a tenuous to modest relationship with their actual behavior and performance. […] On average, people say that they are “above average” in skill (a conclusion that defies statistical possibility), overestimate the likelihood that they will engage in desirable behaviors and achieve favorable outcomes, furnish overly optimistic estimates of when they will complete future projects, and reach judgments with too much confidence.
“People are unrealistically optimistic about their own health risks compared with those of other people. […] Guided by mistaken but seemingly plausible theories of health and disease, people misdiagnose themselves—a phenomenon that can have severe consequences for their health and longevity.
“[R]esearch in education finds that students’ assessments of their performance tend to agree only moderately with those of their teachers and mentors. Students seem largely unable to assess how well or poorly they have comprehended material they have just read. They also tend to be overconfident in newly learned skills, at times because the common educational practice of massed training appears to promote rapid acquisition of skill—as well as self-confidence—but not necessarily the retention of skill.
“In the workplace, flawed self-assessments arise all the way up the corporate ladder. Employees tend to overestimate their skill, making it difficult to give meaningful feedback. CEOs also display overconfidence in their judgments, particularly when stepping into new markets or novel projects—for example, proposing acquisitions that hurt, rather then help, the price of their company’s stock.”
The paper also discusses interventions aimed at reducing the effects of bias on education and business decision-making.
Update: Let’s not forget that optimism can be a very good thing, contributing towards success and happiness in life. To take an example, Assad, Donnelan and Conger (2007) “Optimism: An Enduring Resource for Romantic Relationships” Journal of Personality and Social Psychology Vol. 93, No. 2, 285–297 found that optimists were more likely to cope effectively with problems and have satisfying relationships. In this case, however, the optimism that by working together the couple can overcome most problems and have a happy life is true, so it does not appear to be irrational optimism.
Then again, according to Sandra L. Murray and John G. Holmes (1997) “A Leap of Faith? Positive Illusions in Romantic Relationships”. Personality and Social Psychology Bulletin, Vol. 23, No. 6, 586-604:
“Results of concurrent analyses revealed that relationship illusions predicted greater satisfaction, love, and trust, and less conflict and ambivalence in both dating and marital relationships”. Murray and Holmes also found that people who had optimistic illusions had longer lasting relationships, but all that tells us is that people with high confidence in their ability to improve a situation stay in dead-end relationships for longer. I need to look further into this: either irrationally optimistic people are successfully deceiving experimenters about how well their relationships are going, or romantic relationships are a special case where bias is actually beneficial.